A majority of retirees believe that this year's cost of living adjustment from the Social Security Administration was "insufficient", with half of those contemplating a return to work to finance their lifestyle, a recent survey from Motley Fool revealed.
"I think there is an issue with how we measure inflation for retirees versus inflation for the rest of America," Robert Brokamp, a senior retirement advisor at The Motley Fool, an investment guidance firm, told Newsweek in part.
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In 2024, the adjustment, or COLA, was determined at 3.2 percent, substantially lower than the increase last year of nearly 9 percent. COLA first came into practice in 1975 to incorporate the effects of inflationary pressures on retiree benefits. It adjusts based on the rate of inflation.
Retirees, however, told surveyors that this year's increase failed to sufficiently meet their needs. Thirty-six percent said it was "completely insufficient" while an additional 27 percent said it was "somewhat insufficient." Of those who think the payment increases were not enough, more than half said they are considering getting a job as "Social Security does not provide enough income to support their lifestyle."
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The Motley Fool survey polled 2,000 retired Americans who started getting Social Security benefits in 2023 or later.
About 66 million Americans claim social security payments from the government as part of their retirement benefits. There are concerns that the trust fund where the cash that goes out to retirees comes from could be depleted if reforms of the program are not instituted by then to help ensure its longevity.
A spokesperson from the Social Security Administration told Newsweek that yearly COLA adjustments are based on the rate of inflation.
"Social Security does not speculate or provide comments on COLA predictions," the spokesperson said. "The COLA is set by law and is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year."
Brokamp told Newsweek that the COLA, while based on a pre-determined formula, may be failing to capture full inflation as experienced by retirees.
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"The problem is that this inflation is often based on a big basket of goods and services that don't necessarily align with how most retirees spend their money," he said. "For example, the COLA was 3.2 percent [in 2024], but Medicare premiums went up almost 6 percent. So, I think there is an issue with how we measure inflation for retirees versus inflation for the rest of America." Newsweek contacted the Social Security Administration for comment via email on Tuesday.
Brokamp noted that a significant number of retirees who are considering going back to work could point to a reversal of what was seen during COVID when millions of Americans left the workforce and retired early.
"It was called the 'Great Resignation' by some people and it's now turning out to be the 'Great Sabbatical,'" he told Newsweek. "Because many of these people realize that they retired too soon. They got a nice break, but now they realize they have to go back to work."
He added that for mental health and social reasons, this could be good for some retirees as some surveys have shown that seniors complain of loneliness after they stop working. And with the unemployment low, employers could offer flexible, part-time, work that older Americans can take up to supplement their income.
"You might find a job that will work around your schedule. You work 10 to 20 hours a week, it gives you some extra money, it gives you a little bit of social interaction, which many retirees miss," Brokamp said. "So, it's probably not a bad idea for some of these people to go back to work for other reasons than financial reasons, but I think part of it is that people probably retired a little sooner than they should have."
One aspect of the Motley survey that stood out for Brokamp was that those who did express satisfaction with COLA were retirees who stopped working at 70 years old. Thirty-seven percent of 70 or older retirees said the 3.2 percent increase in 2024 was sufficient, 21 percent were neutral while 43 percent also complained that it was insufficient.
Brokamp suggested that that may point to the benefits of waiting a little longer to claim Social Security benefits.
"The longer you wait, the bigger your benefit up to age 70 for each year you delay, your benefit gets bigger by approximately 8 percent," he told Newsweek. "So if you delayed to age 70 and then you got the COLA, you got that COLA on top of a bigger amount. So that felt more sufficient."
The most popular claim happens at 62 years old, he noted, which provides for smaller amounts.
"When you claim that early you get the smallest benefit. So, then when you apply a COLA to that small benefit, it just doesn't feel substantial," Brokamp added.
He said, if possible, retirees should contemplate waiting to claim Social Security.
"By the way Social Security, it's partially tax-free. So, the longer you can delay it, the bigger the benefit, the bigger the amount of tax-free income you will get," he told Newsweek.
Update 6/18/24, 4:39 p.m. ET: This story was updated with comment from the Social Security Administration.
About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
